I often get blank faces when I ask clients whether they are purchasing their property as joint tenants or tenants in common. However, you cannot avoid this question if you are looking to buy property with another person; whether they are your spouse, family members, friend or business partner.
Understanding the difference between joint tenants and tenants in common is very important as there are very real legal implications depending which way you go. If buyers understand the difference, then they can make a decision that best reflects their intentions.
So what is the difference?
The question really relates to how each person intends to hold the property – for example 100% in one name; 50% each; or in different shares such as 70/30. It also relates to what the parties intend to happen if any of the co-owners pass away. For example, do parties intend for the deceased’s share in the property to automatically pass to the surviving owners?
Tenants in Common
Tenants in common is the easiest to understand because it allows two or more individuals to own a specific fractional interest in the property. For example, say Fred and Mary buy property as tenants in common. They will need to specify what percentages they will hold the property in. For example, 50% and 50%, 70% and 30%, or any other percentages totalling 100%.
Tenants in common allows people to own property in equal or unequal percentages. This is particularly useful if individual buyers are contributing different amounts towards the purchase price, and the parties want this reflected. It can also be used to maximise the tax effectiveness of the asset. In that respect, we recommend that buyers obtain accounting advice.
What is the effect of owning as Tenants in Common?
The major effect is if one of the owners dies, their share does not automatically go to the surviving co-owners, but must be dealt with under the deceased’s will. In our example, if Fred owns 30% and dies, his share will not automatically go to Mary, but will pass in accordance with his will. This means Fred’s 30% share could pass to a third party such as his brother (we’ll call him Bill). Then Bill and Mary would own the property in the shares of 30% and 70% respectively.
This type of ownership is popular with owners who don’t necessarily want their share to automatically go to the other owners (ie. for example, a group of friends or a business partner).
A joint tenancy is slightly harder to conceptualise as it allows two or more persons to own property jointly and the owners can be regarded as together composing one single owner. Therefore, in our example both Fred and Mary individually own the property in the proportion of 100%. Fred owns the whole of the property, and Mary also owns the whole of the property. The joint tenants are said to have indivisible title, or “unity of title”.
What is the effect of Joint Tenants?
Joint tenancy is a very common structure for married and long-term de facto couples. This is because the effect is, if one of the owners dies, their interest in the property automatically passes to the other owner. This is called the ‘right of survivorship’. The deceased’s interest in the property passes to the survivor by operation of law, and is outside the deceased’s assets which are dealt with according to the Will.
So, in our example, if Fred dies, Mary will automatically be the only owner of the property. This is useful as it usually the intention for the property to pass to the deceased’s spouse anyway and the Land Titles Registry paperwork and costs are a lot less if the property passes by operation of law, rather than in accordance with a will.
If you have any questions or queries regarding the meaning and effect of holding property as joint tenants or tenants in common, please do not hesitate to contact the property team at Ferguson Cannon Lawyers.